Learning About Currency Trading Taxation

Before starting to trade in the Forex market, there are some basics about currency trading taxation a Forex trader should be aware of. Notwithstanding the fact whether a Forex trader is going to become a long-term investor, or whether he/she just plans to try and see how it goes, it must be mentioned that currency market provides enormous tax advantages, especially in comparison with other financial markets.

It doesn’t matter whether a forex trader focuses on forex options/futures or on the spot market – there are tax benefits for both of them. Forex options/futures traders are taxed according to the IRC 1256 contracts in which 60% of gains/losses are calculated as long-term gains/losses and 40% as short-term ones. So, the total tax rate appears to be 23% (compare this to 35% tax rate in stocks trading). Spot forex traders are taxed on the basis of IRC 988 contracts, which provide an enormous loss protection – all losses can be calculated as ordinary losses as opposed to the first 3000 US dollars.

IRC 1256 contracts are more difficult in comparison with IRC 988 contracts – the latter provides the same tax rates for the gains and losses, which makes calculations much easier. In addition, IRC 988 contracts are more favorable for counting losses, while IRC 1256 contracts are more advantageous for the gains calculations.

When deciding which tax group to choose, a forex trader should ground on the expected amount of gains and losses.

If a forex trader consults an accounting firm, they will refer him/her to IRC 988 contracts if he/she has decided to trade on the spot forex market and to IRC 1256 contracts if he/she has chosen to be a futures/options forex trader. The key thing to keep in mind is that it is impossible to change from to IRC 988 contracts to IRC 1256 contracts during the trading year.

It must be mentioned that certainly most of the forex traders expect their gains to exceed the losses, so they often opt for IRC 1256 contracts, since they are more beneficial to gains.

What is important to keep in mind when it comes to forex taxation are the deadlines for filing (it is crucial to choose your tax group before the beginning of the trading year), keeping the detailed tax records and the importance of paying taxes, actually, since some forex traders believe they can get away with it, but are eventually caught up by the IRS.

A sensible forex trader will pay close attention to taxes if he/she wants to maximize the profits and minimize the losses. Proper taxation can save great sums of money, in point of fact, so it is well worth doing.

Alexander Collins is CEO at Forexeasystems, who is chief developer of forex trading strategy ProFx and creator of free metatrader prugin Fx Pulse that shows accurate forecasts and historical data from Forex news, etc.

When High Tech Companies Are Good Stocks to Invest In

When there is a recession, the economy dwindles, there are thousands of job losses and real estate sales fall.  An investor trading stock during a recession will soon become distrustful of improvement, doubting what good stocks to invest in are and will begin to sell their stock shares.  During these times stocks in companies specializing in non-essential or technical items is a scary investment for many traders.

Shares in Technology

Instead of the high tech shares, they often switch to stocks in companies who endorse food products and/or health services.  Are these good stocks to invest in right now?  Many investors will answer with a definite yes because these are public services that will always be in demand.  Dividend paying stocks during this time need to completely researched, to avoid overpaying for shares.  Good stocks to invest in 2010 were health services and these stocks continue to be in demand, but can be found at decent prices.

Rock Bottom Prices

Researching what are good stocks to invest in requires looking for companies that do not have negative news regarding their business.  When the shares hit rock bottom prices and the negative data from the company subsides, then buy shares in the company.  In the majority of scenarios, if a company has negative reports and a drop in stock prices, they will most likely have a reverse in trends.

Spread the Wealth

Finding good stocks to invest in, means to diversify your portfolio.  If you focus on primarily one niche of investments, you are taking a risk for lose.  Whereas if you have stocks in various arenas, you are no longer dependent on one particular area for increased profits.  For example, during a recession the tech stock you have may decrease, but increase following the recession.  Instead of having to sell all shares you own, spread the investments among technology that will gradually increase as well as food and health that will continually increase.